HRA in the old regime: how much tax your rent saves

The question HRA actually answers

House rent allowance is in almost every Indian payslip, and in the new regime it is fully taxable. It only becomes a saving if you choose the old regime, pay rent and can prove it. So the useful question is not "how is HRA calculated" but two narrower ones: for the rent you pay, how much tax does the exemption remove, and is that enough to make the old regime the cheaper choice? The HRA exemption guide covers the rules. This post runs the numbers.

The three-way minimum, worked once

The exemption, the one long known as section 10(13A), is the smallest of three annual amounts:

1. the HRA your employer actually pays;
2. rent paid minus 10% of basic salary (basic includes DA);
3. 50% of basic in a metro, 40% elsewhere.

From FY 2026-27 the Income-tax Rules 2026 list eight metro cities: Delhi, Mumbai, Kolkata, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad.

Take a salaried person with a gross salary of ₹15 lakh, basic of ₹6 lakh (40%) and HRA of ₹3 lakh, paying ₹30,000 a month, which is ₹3,60,000 a year.

In a metro all three limits meet at ₹3 lakh, so the whole allowance is exempt. Move the same person to a non-metro city and the 40% cap binds at ₹2.4 lakh. The HRA calculator shows which limit binds for your own figures.

What the exemption is worth in tax

Exempt HRA is income that is never taxed, so it saves your marginal slab rate plus 4% cess. In the old regime that is 31.2 paise per exempt rupee above ₹10 lakh of taxable income, 20.8 paise between ₹5 lakh and ₹10 lakh.

For the same ₹15 lakh earner, also claiming ₹1.5 lakh under 80C (now section 123), ₹2,400 professional tax and the ₹50,000 standard deduction, here is the old-regime tax at different rents. The new regime figure, ₹97,500, does not move, because the new regime ignores rent.

Two things stand out. First, below ₹25,000 a month the metro question does not matter: the "rent minus 10% of basic" limit binds in both columns. Second, the exemption stops growing at a ceiling. Here, every rupee of rent above ₹30,000 a month in a metro, or ₹25,000 elsewhere, saves nothing more. And even at that ceiling, the new regime is ₹19,001 cheaper in a metro and ₹37,471 cheaper outside one. On a ₹15 lakh salary the break-even, the total of old-regime deductions at which both regimes cost the same, is ₹5,43,750; HRA and 80C together reach ₹4.5 lakh at most here.

When the old regime wins

It takes a large rent, a high basic and the other deductions together. Take a ₹20 lakh gross salary with basic of ₹10 lakh (50%), HRA of ₹5 lakh and rent of ₹50,000 a month. Add ₹1.5 lakh under section 123, a ₹25,000 health premium under section 126 (ex-80D), ₹50,000 of NPS under section 124 and professional tax.

The break-even at ₹20 lakh is ₹7,08,334 of deductions. The metro tenant clears it by about ₹19,000; the tenant in Gurugram or Noida, on the same salary and rent, falls short by ₹81,000, because the 40% cap holds the exemption at ₹4 lakh. At ₹40,000 rent the exemption is ₹3.8 lakh in both and the new regime wins either way. The old vs new regime calculator does this sum for any salary, and the guide to choosing your tax regime explains why the break-even flattens at ₹8 lakh higher up.

Rules of thumb

• Check limit (3) before you rent more. Once rent passes 10% of basic plus the smaller of your HRA and 50% (or 40%) of basic, extra rent earns no extra exemption.
• Count the whole bundle, not HRA alone. Below about ₹5.4 lakh of total deductions at ₹15 lakh, or ₹7.1 lakh at ₹20 lakh, the new regime is cheaper. Our FY 2026-27 regime comparison tabulates the break-even from ₹10 lakh to ₹50 lakh.
• A higher basic helps HRA and costs take-home. Limits (2) and (3) both scale with basic, and so does PF. The CTC breakdown calculator shows both effects together.
• The 80C half of the bundle needs money too. If ELSS is how you fill it, the ELSS category and the ELSS tax-saver screen list the funds, with their three-year lock-in.

Pitfalls

No proof, no exemption. Keep a rent agreement and bank transfers; employers ask for the landlord's PAN once annual rent passes ₹1 lakh. Rent to a spouse is generally not accepted; rent to a parent can be, if it is real and the parent declares it. Rent above ₹50,000 a month brings a TDS duty on the tenant, which the TDS calculator covers. And missed proofs are not lost: you can claim the exemption in your return even if the employer deducted tax without it; the first-time ITR guide shows where.

Slabs and limits are FY 2026-27 values from the site's income tax calculator. Verify the current rules on the Income Tax Department's site before you decide. This is not tax advice.